Mobile gaming is an eye-catching industry in the capital market. Some investors are hoping that it could become the next social media but the road ahead looks bumpy.
China Mobile Games & Entertainment (CMGE.US), one of the leading players, surged 6 percent after it reported a 281 percent jump in revenue to 275 million yuan for the three months ended June, thanks to the high growth in its social games and publishing businesses.
But that stock price picture is entirely different if viewed from the beginning of this year. CMGE has slumped 37 percent in the year to date and is 60 percent lower from its February peak.
The Chinese game firm is not the only one that saw a huge drop. King Digital Entertainment, blockbuster game Candy Crush’s developer, has plunged nearly 42 percent since it went public in March.
More investors are skeptical about the sector as a whole and question if they can earn sustainable profits.
Tong Hongxue, a veteran investor in Giant Interactive, explained to Yicai.com why investing in mobile game developers is risky for an average investor. “The mobile game market could be highly profitable in the future, however, if things turn sour, they could lose money a lot faster.”
Among the challenges, the entry threshold for developing mobile games is lower than for PC online games, making the competition much stiffer. Mobile games are typically not so sophisticated. As a result, loyalty of players is relatively low.
Mobile games can generate traffic quickly but traffic does not always translate into profit, Huang Monghao from Pacific Venture Partners said. The venture capital fund has been investing in CMGE since 2012.
Despite the great business uncertainty, the fast-growing market remains a big draw for investors that can tolerate a higher level of risk.
Meanwhile, companies are rushing to raise money before the excitement fades.
Beijing-based Linekong Entertainment Technology and Shenzhen-based iDreamSky are some of the game developers lining up to go public this year.
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